Treasure Chest: Trend Up For IDP Education

This story features IDP EDUCATION LIMITED. For more info SHARE ANALYSIS: IEL

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today, Goldman Sachs reports a quicker than anticipated recovery in international student arrivals should benefit IDP Education's growth. 

By Danielle Austin

Whose Idea Is It?

Analysts at Goldman Sachs

The subject:

With international student arrivals into Australia equating to 74% of pre-pandemic levels in May, analysts at Goldman Sachs believe volumes will reach pre-pandemic levels in FY23, before exceeding them in FY24. 

These trends should directly benefit IDP Education ((IEL)), whose business model was significantly impacted by pandemic restrictions on international student movements.

More specifically, Goldman Sachs analysis anticipates volumes across FY22 to be 68% of pre-pandemic levels and roughly in line with pre-pandemic levels in FY23, before growing 15% in FY24 and 10% annually following that in the medium-term.

This represents a step up in the brokers anticipated pathway to volume recovery, with Goldman Sachs in April guiding volumes would only reach pre-pandemic levels in FY24.

More info:

Analysts from Buy-rated UBS (target price of $34.60) noted visa approvals into Australia suggested May was a softer month for volume improvement, with approvals down -6% month-on-month in April, but noted collectively the last three months have seen a step change in recovery momentum.

While the broker sees recent momentum as positive for the outlook of domestic student placement volumes, it also notes rising inflation could present some risk to continued earnings recovery. Highlighting IDP Education’s growth potential, UBS finds the stock an attractive buy for investors at its current valuation given the relatively low multiple compared to the stock’s three-year average.

While a return of students into Australia is a positive for the company, Goldman Sachs also highlighted the positive growth occurring in international markets. The broker had previously highlighted opportunity in the northern hemisphere, reporting in April that student placement volumes in international markets had already exceeded pre-pandemic levels, with visa approvals for the UK and Canada 57% and 44% above pre-covid levels in the first half of FY22 respectively.

Goldman Sachs believes the UK and Canada markets present significant opportunity for IDP Education. With the company holding only 2-3% market share in each of these international markets, compared to the 15% share it holds in the Australian market, further penetration of these regions offers sizeable opportunity to IDP Education.

The analysts estimate international student placements in both regions have already increased at a 20% compound annual growth rate between FY19 and FY22.

Goldman Sachs highlighted students from India are key to a continuation of this trend, with Indian students entering the UK market increasing from around 20,000 in FY19 to more than 100,000 in the first three months of FY22.

Back in April, analysts from Morgan Stanley observed IDP Education’s continuing investment into digital and operational improvements during the pandemic should see the company take market share in a post-pandemic world. The broker (Overweight rated with a target price of $35.00) is forecasting an average 250 basis point group margin improvement between FY23 and FY25.

Morgan Stanley finds IDP Education’s premium justifiable and a reflection of the company’s high quality growth, with the broker forecasting an earnings per share compound annual growth rate of 40% through to FY25.

Currently four of the seven stockbrokers monitored daily by FNArena cover this company. The average target price calculated from these four is $35.175, suggesting IDP Education shares are trading no less than -42% below potential.

Goldman Sachs is not included in these four. Its rating is Buy with a twelve month price target of $35.50.

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